Are We Past the Point of No Return When It Comes to Inequality?
When the world's leading economic policy makers, academics, and businesspeople met in Davos, Switzerland for the World Economic Forum, they did not substantively address policies that would combat rising wealth inequality.
This failure means that the gathering was nothing more than a glad-handing, backslapping, feel-good event for those involved because the future of the global economy depends on reducing the explosive growth in inequality witnessed over the past four decades.
Oxfam International recently released a report which documents that since 2009 the share of global wealth held by the richest 1 percent rose from 44 to 48 percent. More alarmingly, by next year, this group will own half of all global wealth. This means that the richest 1 percent will own as much wealth as the bottom 99 percent-- the rest of us -- combined.
The average wealth holding for the 1 percent is nearly $3 million per person, with the bulk of this wealth concentrated further in the top 0.1 and 0.01 percent. The richest 85 individuals own as much wealth as the poorest 3.5 billion people, or half the world, combined.
What about those in the middle? Of the remaining 52 percent of global wealth, 46 percent is held by the richest 20 percent of the world population, leaving only 6 percent to be divided amongst the poorest 5.6 billion people, for an average of just under $4,000 per person.
The explosion in inequality presents serious moral, economic, and political problems.
Morally, we must ask if it is fair that in the wealthiest period in history that one billion people -- nearly 15 percent of the world population -- are condemned to a life of total material deprivation, living on less than $1.25 per day.
Is this the type of society we want where the majority of people depend on the economic elite for their very survival? Today, the right of the elite minority to earn as much as they can trumps the rights of the poverty-stricken majority to lead a dignified and secure life.
From an economic perspective, high levels of inequality are detrimental to the long-term health of the global economy. With wealth funneled to those atop the wealth distribution, the rest of the population, who are responsible for the overwhelming majority of consumption, lose purchasing power, leading to slower growth.
With less purchasing power, the elite's excess income is channeled from job-creating ventures to casino-style speculation, which generates wealth for the elite, but creates asset bubbles, which inevitably pop. This leads to volatility in financial markets and deep recessions, whose costs are shouldered by the rest of the population. With volatility comes rising economic insecurity and the greater likelihood that your job and income will disappear with little to no warning.
Politically, rising inequality portends a less democratic, more oligarchic future. As a small group continues to amass larger shares of wealth, their economic power increases. This concentration of wealth translates to increased political power, as the elite contribute astronomical sums to political campaigns. The politicians who owe their office to these contributors will pass legislation -- lower taxes, deregulation, weakened environmental protection, deunionization -- favorable to elite interests, creating a virtuous cycle for them and a vicious one for everyone else.
The long-term prospects for the world economy depend on reducing inequality. What policies could be enacted to reverse this trend? Making the income tax system more progressive by raising marginal rates on top earners to 70 percent, the rates that existed in the 1970s, just before inequality erupted, would be a start. Instituting a global wealth tax would also curb inequality's rise.
But what about bringing up those at the bottom? Building a stronger safety net, promoting education, creating a global minimum wage, and offering guaranteed employment would give many the opportunity to move up the income ladder.
Policy makers must find ways to stop inequality's march. Failure to do so will cause wealth to become more concentrated in the hands of a few, lowering the standard of living for everyone else, creating a reversal of the shared prosperity that characterized much of the 20th century.
Without major change, the future looks unbearably bleak -- except for the richest 1 percent.